Lawsuits say insurer kept millions from clients

Share via e-mail

Massachusetts Mutual Life Insurance Co. is fighting several lawsuits accusing the Springfield life insurer of shorting policyholders on dividends and preventing many of them from voting for directors.

The suits, recently filed in federal court in Massachusetts, raise questions about the company’s obligations to customers under state law and the language in their policies. The plaintiffs are seeking class-action status.

Unlike companies that are owned by shareholders, MassMutual is mutually owned by its policyholders, giving customers the right to vote in annual meetings and to receive part of the company’s profit in the form of dividends.

Two suits filed by the same law firms allege that MassMutual retained millions of dollars in profits it should have disbursed to policyholders over the past decade.

Get Talking Points in your inbox:

An afternoon recap of the day’s most important business news, delivered weekdays.

MassMutual is permitted to keep a portion of its profits in reserve to help cover possible claims or to invest in its business, but it is supposed to return the rest to policyholders.

The lawsuits allege MassMutual sidestepped the requirement, however, by understating the amount in its surplus fund and thus owes more than $5 million in dividends to more than 2 million policyholders.

The suits were filed on behalf of Jessica C. Rule of Natick, Karen L. Bacchi of Andover, and other affected policyholders.

MassMutual spokesman Mark Cybulski said the company complied with the law and the suits are “completely without merit.”

“The company’s maintenance of an appropriate level of surplus within the limits provided by Massachusetts law has allowed MassMutual to withstand economic shocks since its founding in 1851,” he said.

The plaintiffs could not be reached for comment. One of their attorneys referred calls to another attorney who did not respond to requests for comment.

A third suit argues the company illegally barred hundreds of thousands of MassMutual policyholders from voting for board members if their policies covered other people.

People often take out life insurance policies to cover their relatives or business partners. But the suit argues that MassMutual transferred the voting rights from the people who bought and paid for the policies to the people covered by the policies, in violation of state law.

“The law is pretty black-and-white,” said Michael­ Barry, one of the attorneys on the case.

Barry said he could not think of any other mutual­ life insurance company that lets the people covered by the insurance policies vote, instead of the people who own the policies. Historically, MassMutual let policyholders vote, as well, but changed the practice in 1963, Barry said.

Lawsuits allege MassMutual understated its surplus and thus owes policyholders more than $5 million; the Springfield company says the suits are ‘completely without merit.’

“MassMutual affords its members their rights under their policies in full accordance with the law,” said Cybulski.

The Securities and Exchange Commission contacted MassMutual about the issue last year, Barry said, but it is unclear whether the SEC plans to pursue the matter further. The SEC did not return calls.

The state Division of Insurance, charged with overseeing mutual insurers, declined to comment; MassMutual also declined to comment about the SEC inquiry.

The case was filed on behalf of two siblings, Madaline S. Keros of New Hampshire and William J. Keros of Michigan, and a Keros family trust — all of which held policies dating back to the 1970s — in addition to any other policyholders that are potentially affected.

Several of the policies covered George Keros, an 81-year-old investor from Concord, N.H., who said he became interested in the issue six years ago.

Keros said he thought it was odd when MassMutual told him he was welcome to attend the annual meeting, but his daughter Madaline — who owned a life insurance policy on his life and had an economic interest in the company — could not. MassMutual did not even have his address on file, because his daughter paid the premiums for the policy and would be entitled to any payout in the event of his death.

Keros said he first raised questions about the practice at the 2006 annual meeting and complained to MassMutual executives, long before his family sued. The suit asks a judge to order MassMutual to let policyholders vote in future elections and award them unspecified compensation for violating their rights in past elections.